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Indonesia Monetary Policy March 2023


Bank Indonesia (BI) held the BI-Rate at 6.00% at its 19–20 March meeting, where the rate has been since October 2023. The Bank also left the deposit facility and lending facility rates unchanged at 5.25% and 6.75%, respectively. Markets had broadly anticipated the hold.

BI left rates unchanged once again as part of its ongoing strategy to strengthen the rupiah and keep inflation within its 1.5–3.5% target band in 2024. With regards to the economy, the Bank maintained its previous projections of GDP growth between 4.7–5.5% in 2024 on the back of resilient domestic activity and improving external demand. Additionally, inflation remained within target in February, and BI stated that it was “confident that headline inflation in 2024 will remain under control and within the target corridor”.

BI did not share explicit forward guidance in its communiqué. Nevertheless, the Bank stated that uncertainty in financial markets remained high, which, together with the U.S. dollar’s recent appreciation, calls for caution in domestic monetary policy. In addition, BI pointed out that it expected the U.S. Fed to begin cutting rates in H2 2024, hinting at the potential start of its own monetary policy loosening cycle. The strength of the rupiah and the Fed’s pivot remain the key factors to watch. Most of our panelists currently see the BI’s first rate cut in either Q2 or Q3, while the Consensus is for about 75 basis points of rate cuts by end-2024.

The next meeting is scheduled for 23–24 April.

Nomura analysts Euben Paracuelles and Nabila Amani see BI moving in lockstep with the U.S. Fed:

“We officially change our forecast and now pencil in a total of 50bp in rate cuts by BI this year from 100bp previously, taking the policy rate to 5.50% by end-2024 (previously: 5.00%). This mainly reflects the change in our US team’s view that the Fed will cut only twice this year for a total of 50bp (previously 75bp), starting with a 25bp cut in July and another 25bp in December. Today’s BI meeting continues to suggest the Fed will be the main policy consideration for BI with respect to its cutting cycle, in our view.”

United Overseas Bank analysts Enrico Tanuwidjaja and Agus Santoso expect the BI to extend its pause through end-2024:

“Rupiah stability to be the key reason for keeping the BI rate steady this year. In addition, Indonesia’s steady economic growth, as well as manageable inflation are also the key factors for BI to delay easing interest rates in early 2025. However, we note several downside risks that could potentially disrupt Indonesian economic growth and rupiah stability: prolonged and broader conflicts in the Middle East, weaker demand from China and Japan especially for Indonesia’s main exports commodities, as well as slower disinflation pace in the US which delays the Fed Funds Rate cuts this year.”

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